| Insight after the bell
By Caleb Silver, Editor in Chief Monday's Headlines 1. A volatile 2018 comes to a close on a high note
Markets Close
 We made it!
Stocks closed out 2018 on a high note as all major markets finished in the green. It was a good way to end a rough month, which will go on record as the worst December since the Great Depression. 2018 will also be the worst year in a decade for stocks, which have enjoyed a remarkable run since the global economy was rescued from the clutches of the Financial Crisis by extraordinary government intervention in 2009. As monetary policy 'normalizes' - at least in the U.S. - we are starting to see the effects on stocks, bonds and all asset classes. We are also a much more globalized market than ever before. No country is an island, metaphorically speaking.
Here's how we end the year across major markets and assets:
YEAR TO DATE DJIA: -5.63% S&P 500: -7.01% Nasdaq: -3.88% Russell 2000: -12.18% 10 Year U.S Treasury: +11.68 Crude Oil: -32.32% U.S. Dollar +4.31 Gold: -3.79% Bitcoin: -76.99%
Since we are scorekeeping, here is the best and worst performing stocks in the S&P 500 in 2018:
Best: Advanced Micro Devices (AMD) +73.3 Abiomed (ABMD) +69.8 Fortinet (FTNT) +61.0% Advance Auto Parts (AAP) +55.9% TripAdvisor (TRIP) +55.4% Chipotle Mexican Grill (CMG) +46.8% Red Hat (RHT) +45.4% Keysight Technologies (KEYS) +44.5% O'Reilly Automotive (ORLY) +42.2% Boston Scientific (BSX) +39.9%
Worst: Coty (COTY) -67.4% L Brands (LB) -57.7% Mohawk Industries (MHK) -57.5% General Electric (GE) -57% Invesco (IVZ) -54.7% Newfield Exploration (NFX) -54.6% Perrigo (PRGO) -54.2% Western Digital (WDC) -53.8% Affiliated Managers Group (AMG) -53.2% Cimarex Energy (EXEC) -49.8%
Today is a good day for you to look at your own performance as investor. Ask yourself these questions: · What were my goals at the beginning of the year? · Did I achieve them? What were my wins and losses? · What did I learn? · Has my relationship with money and investing changed? If so, how? · How am I positioned for 2019? · What will I do if my investments drop another 20 percent? · What will I do if my investments rise 20 percent? · What are my goals for 2019?
These financial resolutions are a good place to start if you are looking to make some. This blog post from Nick Maggiulli is really insightful, too. Once you've read it, ask yourself if you are a 'kind', or 'hostile' investor.
Quick Recap: 2018 has been a remarkable year. From market highs to volatile corrections, sentiment shifts throughout asset classes, tariff wars and government shutdowns, the long and winding road to Brexit, the devastating impacts of climate change, moderating growth of China and emerging markets, the fall of once and former giants like GE and Sears, the collapse of cryptocurrency prices, the rise of the cannabis industry in the public markets, the continued influence of Facebook, Apple, Amazon, Netflix and Google, and so much more.
We've summed up the top terms on Investopedia as measured by reader interest for you here, in case you missed it.
And here are our predictions for 2019: No science, here…just editor intuition.
Final note for the year… We started writing this newsletter in mid-September hoping to find another way to communicate with our readers on a more personal and direct level. (A good buddy of mine likes to remind me that the stock market summarily turned south as soon we relaunched Market Sum.) For that, we apologize, although we know our pen is not that mighty...We've been overwhelmed by the feedback from our readers around the world about this afternoon note we share with you. Nothing is more rewarding than that feedback and knowing that what we do connects with you in some way. It's humbling and we consider it a remarkable privilege. We'll do our best to keep improving this note and everything we do at Investopedia.
We wish you a healthy, safe and joyous 2019.
Caleb Silver Editor in Chief Investopedia
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Monday, December 31, 2018
We Made it!
Why Bear Markets Are Hard to Predict
| Focus on the Price
By John Jagerson, CFA, CMT Monday, December 31, 2018 1. Don't be too confident that bears will win in 2019 2. Yield curve could set up banks for big gains 3. The January barometer? Not so much. Major Moves I was chatting with a professional trader friend of mine last week and we got into a debate about how likely it is for the economy to go into recession in 2019, which would also likely mean that the S&P 500 would remain in a bear market. It was an interesting conversation and it made me think of three reasons why recessions and bear markets are so difficult to identify in advance.
1. By their nature, economic contractions and bear markets tend to be short-lived (or at least that has been true for the last 80 years in the US). The most recent decline is a good example of what I mean: the market fell 20% over 57 trading days, but in order to lose that 20% the market had to gain 25% over the previous 341 trading days. The market moves down much faster than it moves up, so investors get less warning from market technicals than we do for bullish rallies.  2. The base rate for large corrections is very rare. That means that although investors are very fearful of downturns they don't happen very often. For example, the last 20% decline in the S&P 500 was in 2011, and the time before that was 2008. In over 10-years there have only been three market declines of 20% or more. Further, there have only been two periods of economic contraction (2011-2012, and 2014-2015) since the financial crisis in 2008.
3. Finally, the most vexing problem with predicting bear markets is that, by definition, they start at the point of maximum optimism. A bear market begins from a high, which was just as true in 2018 as 2011 or 2007. The inverse is also true, bull markets begin at the point of maximum pessimism (the bottom of the decline).
Identifying that point of maximum pessimism—or what some investors refer to as "capitulation"—is usually easier than correctly identifying the highs because bottoms take longer to form and produce more reliable technical signals. However, what investors should prepare themselves for is a consolidation at the lows. Before the most recent declines, I thought we might've had a chance at completing a consolidation in October and November. Although November's technical pattern failed to breakout, we should be looking for something similar in the first quarter 2019 to signal a recovery.
In the Investing for Beginners course, I show in detail how investors can profit from a bull and bear markets and how to protect their portfolio when prices start to fall. Use code HAPPY2019 at checkout for 30% off any of the courses in the Investopedia Academy. Get started on your 2019 education resolutions right away! 
Risk Indicators: Yield Curve The yield curve (as measured by the difference between the 2-year Treasury bond yield and the 10-year Treasury bond yield) has been improving since it hit its low on December 5th, when the difference between those two interest rates was almost zero. This is an important indicator for several reasons, one of which is that when the difference between these two interest rates is very small, bank profits go down.
Banks make money when they are able to lend at a higher rate than they borrow. Basically, when the yield curve is flat, the difference in yields at which banks are lending and borrowing shrinks. As you can see in the following chart, I have compared the SPDR S&P Regional Banking ETF (KRE) with the difference between the 10-year and 2-year interest rate. When the spread is getting wider, banks will perform very well such as at the end of 2016. When the spread is narrowing gains are more difficult to achieve, volatility rises, and bank stocks are prone to big price shocks.
Even when adjusted for dividends, banking stocks are off 50% more than the S&P 500 for 2018. Most of those declines are due to the narrowing spread between interest rates. However, if the yield spread continues to improve, banking stocks could be some of the biggest winners in 2019. This is especially true if energy prices continue to rise. Regional banks in the Southeast and Midwest US (where the energy industry has the biggest impact on the economy,) could be in a position to benefit the most.  Bottom line: Don't judge 2019 by January's performance Traders start talking about the January barometer around this time of year. The idea is that if stocks post gains in January, the rest of the year has a high likelihood of ending positive. However, if you exclude January's returns from the historical studies then we find that the January barometer has no predictive value. This is an important thing for investors to remember because the market has been so choppy over the last two or three months. True market tops and economic corrections are very hard to predict. If January turns out to be disappointing or flat, be careful about judging the rest of the year the same way. Earnings are expected to be another blowout quarter so a recovery in the first six months of 2019 is still a high probability. How can we improve the new Chart Advisor? Tell us at chartadvisor@investopedia.com
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